Question

To 4-6 Homerun Corp., which manufactures baseball bats, currently has two product lines, the Traditional and the Acrylic, and $47,125 in total overhead. The company has identified the following information about its activity cost pools and the two product lines: Actity Cost Pools Cost Driver Cost Assigned to Pool Quantity/Amount Consumed by Traditional Line Quantity/Amount Co 751 $17.500 100 moves Materials handling Number of moves 875 ins $ 5,625 1.000 inspections Quality control Number of inspections 12,000 mi $24,000 8.000 machine hours Machine maintenance Number of machine hours Required: 1. Suppose Homerun used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line 2. Calculate the activity rates for each cost pool in Homerun's ABC system 3. Calculate the amount of overhead that Homerun will assign to the Traditional line if it uses an ABC system. 4. Determine the amount of overhead Homerun will assign to the Acrylic line if it uses an ABC system. 5. Compare the results for the traditional system with those of the ABC system. Which do you think is more accurate and why? PB4-2 Assigning Costs Using Traditional System, Assigning Costs Using Activity Proportions OLO 4-1, 4-3, 4-5, 4-6 ELE

Answer 1

Requirement 1 Total Overheads Total Machine Hours Overhead Rate $ $ $ 47,125 20,000 2.36 Per Machine Hour Particulars No. of Machine Hours Overhead Rate Total Overheads Traditional 8,000 $ 2.36 $ $ 18,850 $ Acrylic 12,000 2.36 28,275 Requirement 2 Particulars Materials Handling $ Quality Control $ Machine Maintenance $ Cost 17,500 5,625 24,000 Qty. 175 1,875 20,000 Activity Rate $ 100.00 $ 3.00 $ 1.20 Requirement 3 Particulars Materials Handling Quality Control Machine Maintenance Driver Qty. Activity Rate 100 $ 100.00 1,000 $ 3.00 8,000 $ 1.20 $ $ $ $ Cost 10,000 3,000 9,600 22,600 Requirement 4 Particulars Materials Handling Quality Control Machine Maintenance Driver Qty. Activity Rate 75 $ 100.00 875 $ 3.00 12,000 $ 1.20 $ $ $ $ Cost 7,500 2,625 14,400 24,525 Requirement 5 Particulars Traditional Line Acrylic Line Traditional ABC System Difference System $ 18,850 $ 22,600 $ 3,750 $ 28,275 $ 24,525 $ (3,750)